Banco Popular, Spain’s sixth biggest bank, is no more. Its assets, including a massive portfolio of small-business clients, now belong to Banco Santander, Spain’s biggest bank. The global giant now has 17 million customers in Spain, a country of just 45 million people. The price was €1. If government will not bail out banks, then eradicating all value to shareholders attaches a completely new kind of risk to shareholders. If they were investors in a manufacturing company that went bust, the assets would go into bankruptcy and there would be a realistic sale of assets. What has just taken place is that if the net asset value of the bank, its own building, property etc., were say even 20% of the share value, then the shareholder faces a 100% loss in bank stocks compared to any other share investment.
Banco Popular’s shareholders, who’d been repeatedly handing Popular fresh funds in numerous capital expansions, will be wiped out.Holders of Popular’s riskiest bonds, its AT1 bonds (AT1 is a very popular with Indian Banks also) and AT2 bonds, or CoCo bonds, also got wiped out. These bonds had already plunged in recent weeks.But the deposit holders were bailed out
Wolf Richter writes….Bail-ins of investors are the way banks should be resolved but as we’ve seen in the collapse of Popular, banks can often have existential issues simmering away in the background for months, if not years, but once they’re thrust into the foreground, it can take just days for the confidence of depositors and investors to completely vanish.
With the S&P 500 falling a double-digit percentage in the first half, most equity hedge fund managers struggled to keep their heads above water. The performance of the equity hedge fund sector stands in stark contrast to macro hedge funds, which are enjoying one of the best runs of good performance since the financial crisis. Read More
This marks the first time under the EU’s Bank Recovery and Resolution Directive, passed in January 2016, that shareholders and subordinate bondholders of a European bank have not been bailed out by taxpayers, but were “bailed in.”
And it was the first time that a banking failure was allowed to occur in Spain whose resolution didn’t involve taxpayer intervention .The fact that financial markets received the bail-in of Popluar’s investors calmly means that investors Bail in is the way to go.